Economy & Aid
Palestinian Authority deficit now financed by unpaid wages and supplier arrears
Graphic: Times of Palestine
Original Reporting
The Palestinian Authority's deficit is no longer being financed. It is being deferred onto its own employees, its suppliers and its pension fund.
The World Bank's quarterly review of Palestinian fiscal performance for July to September 2025 records arrears to the private sector of US$1.65 billion and arrears to public employees of US$2.5 billion as of September 2025, with total PA debt at US$4.79 billion. Six months earlier, the Bank's January to March 2025 review put employee arrears at US$1.8 billion and debt at US$4.2 billion as of April 2025 — a rise of roughly US$700 million in each line over five months.
The World Bank's West Bank and Gaza country page reports domestic bank borrowing of US$3.3 billion as of December 2025, and states that the PA expanded that borrowing beyond prudential limits while continuing to accumulate arrears to public employees, the private sector and the pension fund. The 2025 Investment Climate Statement published by the US State Department reports approximately US$3.8 billion in accumulated PA arrears to the pension agency.
The reason is a single missing line. The State Department statement records that clearance revenues — customs and other duties collected by Israel on the PA's behalf — made up 69 percent of all PA revenues in 2024. The World Bank's July–September 2025 review states that transfers of clearance revenue have been completely halted since May 2025. The Palestine Monetary Authority's public finance report for the third quarter of 2025 says no clearance amount had been transferred since June.
Deductions preceded the halt. The World Bank's April–June 2025 review reports that monthly Israeli deductions from clearance revenue averaged more than NIS 460 million in the first half of 2025, against about NIS 200 million before October 2023. The State Department statement describes deductions for electricity, water, sewage and hospitals, alongside amounts Israel assesses the PA spends on payments to families of prisoners, and records that since November 2023 Israel's finance ministry added roughly US$75 million monthly against what Israeli officials estimate the PA pays its Gaza employees; it puts those Gaza deductions at approximately US$845 million in 2024.
The Ministry of Finance's own December 2025 monthly report, published in millions of shekels, carries the mechanics in its footnotes: NIS 1,818.8 million withheld from clearance funds and transferred to the Israel Electric Corporation and the Dor and Paz fuel companies. The same report notes that net lending turned negative in April 2025 because of an offset applied to electricity bills owed by the PA to supply companies, and that the wages figure appearing in the December 2025 report is the payment made that month against September salaries.
Figures are not comparable across bases. The ministry publishes parallel tables on a commitment basis and a cash basis, and its notes state that on the cash basis clearance revenue includes discounts for water, electricity, sewage and hospitals — so that when no cash arrives, the line still shows the deductions.
That distinction drives the composition of spending. The July–September 2025 World Bank review reports that the wage bill, the largest single spending item, rose only 0.5 percent on a commitment basis, reflecting the mandated step increase and annual promotions, while on a cash basis the PA paid only 50 to 70 percent of monthly wages during 2025, protecting the lowest earners. The Bank's country page states that payment was cut further, to 50–60 percent, in late 2025.
On the revenue side, the same review records clearance revenues earned rising 6 percent on a commitment basis in the first nine months of 2025 year-on-year because imports rose 17 percent, as reported by the Palestinian Central Bureau of Statistics, while domestic tax collections fell 6 percent. The April–June review put the first-half figures at plus 16 percent and minus 17 percent respectively — earned but uncollected revenue rising while cash collection fell.
The April–June review reports transfers, the second-largest spending item, up about 6 percent on higher social assistance and pension payments, interest payments up 175 percent as domestic borrowing rose, and development spending cut 27 percent in the first half of 2025. The July–September review reports use of goods and services up 10 percent and interest up 3 percent over nine months, mainly to meet health-sector needs.
The Bank's Public Expenditure Review of the Palestinian Authority, published in 2025, found that between 2011 and 2018 the wage bill averaged 14 percent of GDP and 46 percent of central government spending, against 11 and 30 percent for the MENA region. It reports public pension spending at 3.5 percent of GDP, or 13 percent of the PA budget, in 2022, and states that the Palestinian Pension Authority faces a high risk of default. It puts the stock of private-sector arrears at an estimated US$1.5 billion, 9 percent of GDP, at end-2024, owed mostly to pharmaceutical companies, private and NGO hospitals, and contractors.
A World Bank project document reports the education sector wage bill at ILS 0.97 billion from January to May 2025, describing that as 48 percent of the PA's wages and salaries in the period; the document does not specify whether the comparison is on a cash or commitment basis, and the figure cannot be reconciled with the ministry's commitment-basis totals as published.
The security sector's share is not separately identifiable in the monthly reports, which classify spending economically rather than by sector. No published disaggregation of security spending was located in the ministry's or the World Bank's 2025 reporting.
Estimates of what Israel is holding diverge sharply. UNCTAD reported in November 2025 that cumulative deductions and withheld revenues between January 2019 and April 2025 came to an estimated US$1.76 billion, equal to 12.8 percent of 2024 GDP and 44 percent of total net revenues. The UN Special Coordinator's note to the Ad Hoc Liaison Committee in September 2025 said the cumulative total of withheld clearance revenue had passed US$2 billion. Al Jazeera reported on 26 December 2025 that Palestinian Economy Minister Mohammed al-Amour put the figure at approximately US$4.5 billion and called it collective punishment. The definitions behind the three totals differ, and none is reconcilable to the others from the published documents.
Donor money has not closed the gap. The April–June review records donor financing of US$339 million in the first half of 2025 — US$298 million in budget support and US$41 million for development — and the July–September review states that donor financing was not enough, with the deficit after grants and after accounting for clearance deductions reaching US$883 million over nine months, the European Union the largest contributor, followed by the World Bank.
The UN note recorded that total revenue in July 2025 was less than a quarter of pre-October 2023 levels.
Sada News reported, citing Ministry of Finance data, that public-sector employee dues reached about NIS 7.3 billion and private-sector dues about NIS 6.7 billion by end-October 2025, with local borrowing at about NIS 11.2 billion and external borrowing at about NIS 4.4 billion.
The State Department's 2025 Fiscal Transparency Report found that the PA published monthly budget execution reports giving a substantially full and generally reliable picture, but that its enacted budget was published late and incomplete and was not approved by a legislature. The official news agency WAFA reported on 13 March 2025 that the Ministry of Justice had published the draft 2025 Public Budget Law for consultation.
What has not been established is any mechanism for release. The Arab Center Washington DC reported that twelve donor states launched an Emergency Coalition for the Financial Sustainability of the Palestinian Authority on 26 September 2025, and put international aid to the PA in 2025 at US$358 million. No published agreement resuming clearance transfers, and no schedule for clearing the arrears now standing in place of a budget, is on the record.
